Let’s Do Something about Corporate Welfare and Crony Capitalism!

 

The American Enterprise Institute is one of my favorite Washington think tanks.  It defines its mission as “research and education on issues of government, politics, economics and social welfare.”  I especially like its interest in social welfare which translates for me as being fiscally conservative with a heart.
CaptureThe AEI’s Timothy Carney has just proposed “An anti-corporate welfare, anti-cronyism agenda for the 114th Congress.” Most candidates for Congress condemn crony capitalism and corporate welfare.  This generally means any policies which tilt the playing field, picking winners and losers and rewarding well-connected insiders.  Such actions contribute to the public perception that the “game” is rigged and harm economic growth and innovation.  Here are some prime examples discussed by Mr. Carney:

  • Health Care: repeal Obamacare’s insurer bailout (the “risk corridors”) so that health insurers compete totally on price.
  • Health Care: end the individual mandate which forces people to buy a product from a private industry. An alternative incentive for individuals to remain covered would be limiting enrollment periods, for example, to a brief six-week sign-up period every two years.
  • Energy: end tax breaks and subsidies for both renewable energy (including ethanol) and oil and gas. Make all forms of energy compete in the market.
  • Taxes: make corporate taxes simpler, lower and more neutral. Besides being fairer, such changes will boost the economy.
  • Finance: Rein in Fannie Mae and Freddie Mac by treating them the same as all big banks. This means the same capital requirements, the same tax treatment and the same consumer protection regulation.
  • Finance: Kill Dodd-Frank’s too-big-to-fail designation. It acts as a moat, protecting the big guys from competition.
  • Trade: Kill the Export-Import Bank.
  • Trade: Repeal the Jones Act. It requires all shipping between U.S. ports be done on U.S. flagged vessels.
  • Agriculture: End the Sugar Program which costs consumers $3 billion per year.
  • Agriculture: Reform the Federal Crop Insurance Program by making it self-supporting.

These mostly well-known examples of corporate welfare represent just the tip-of-the-iceberg.  Nevertheless they provide a good place to start in cleaning things up!

Can We Solve Our Fiscal Problems by Taxing the Rich? I. The Third Way

“I enjoy your blogs and always look forward to the next one.”
“I am amazed when listening to my liberal friends, who could care less about any of the arguments you are making. Their basic belief is that any deficit can be solved in short order by simply raising taxes on the rich. One of these friends just bought a home in Palm Springs and came back declaring, ” Jerry Brown solved the financial problem in California. He raised taxes on the rich and the deficit is gone. California no longer has a financial problem.” He then went on to say that with 40 million people, California will set a good example for the country. After listening to this, I think you should address the issue of why simply increasing taxes will never work. I would start with Simpson Bowles and then go on to more recent findings. I think this argument has to be made over and over again. There are precious few Democrats who think we have a serious or fundamental financial problem that cannot be solved by simply raising taxes on the rich. I believe Obama is leading the charge.”

One response to this argument is provided by the President, Jon Cowan, and the Senior Vice President for Policy, Jim Kessler, of the Third Way, a center-left think tank, in a June 2013 memo, “The Four Fiscal Fantasies” .

  • Fantasy #1: Taxing the rich solves our problems.

Mr. Cowan and Mr. Kessler look at a plan that “completely soaks the rich.”  They stipulate that the top tax rate increases ten points to 49.6%.  They impose the Buffett Rule requiring all millionaires to pay at least 30% in taxes (after deductions).  They raise the estate tax to allow a $3.5 million exemption with a 45% rate.  “If we leave entitlements on auto-pilot in this scenario, our deficit in 2030 will be close to a stunning $1.3 trillion in 2013 inflation-adjusted dollars.”
The authors then show that to keep our finances even roughly in check, a middle income family with a $65,000 income, for example, would have to pay several thousand dollars a year in new taxes.
Conclusion:  We cannot keep entitlements on auto-pilot.  Something has to give!